511 B.R. 62
Bankr. M.D.N.C.2014Background
- Debtors filed Chapter 11 on March 14, 2014; ArborOne moved to convert to Chapter 7 under 11 U.S.C. §1112(b).
- Pre-petition, ArborOne funded Carolina AAC and Carolina AAC Development with bonds totaling $10,438,000 and secured liens and guarantees.
- Construction on the AAC plant halted after the general contractor’s suicide; default on bonds declared; surety payments disputed.
- ArborOne obtained two NC judgments against the Debtors on January 23, 2014 totaling approximately $10.5 million-plus; post-judgment actions and foreclosures ensued.
- Debtors liquidated stock (~$433k) pre-petition; plan to secure pension funds discussed; foreclosure sales scheduled for June 10 and June 16, 2014.
- Bankruptcy filings show first operating period (sixteen days) with zero income and net loss; second period shows positive net income of $1,999.17 and cash on hand $6,336.21.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether there is substantial or continuing post-petition loss to the estate. | ArborOne argues ongoing losses post-petition. | Debtors contend any losses were pre-petition or not substantial post-petition. | Not satisfied; no substantial or continuing post-petition loss proven. |
| Whether there is a reasonable likelihood of rehabilitation. | ArborOne contends rehabilitation unlikely given financials. | Debtors argue potential for rehabilitation with future income. | Not reached/needed because first prong failed; rehabilitation not determined. |
Key Cases Cited
- In re Gateway Access Solutions, Inc., 374 B.R. 556 (Bankr.M.D.Pa.2007) (guides assessment of §1112(b)(4) factors with post-petition evidence)
- In re Landmark Atlantic Hess Farm, LLC, 448 B.R. 707 (Bankr.D.Md.2011) (post-petition cash flow as a measure of loss to estate)
- In re Creekside Sr. Apartments, L.P., 489 B.R. 51 (Bankr.D.Md.2013) (two-prong test for cause under §1112(b)(4))
- In re Park, 436 B.R. 811 (Bankr.W.D.Va.2010) (negative cash flow supports cessation of reorganization)
- In re Ashley Oaks Dev. Corp., 458 B.R. 280 (Bankr.D.S.C.2011) (continued loss supports §1112(b)(4) analysis)